Citi Raises Gold Price Forecast to 3500 Dollars Per Ounce Amid Trade Tensions

Wall Street's gold bulls have shown signs of divergence, with Citigroup (Citi) recently raising its short-term gold price forecast to 3500 dollars per ounce. This revision is primarily driven by the escalating trade tensions under the Trump administration and heightened geopolitical risks, which are seen as significant drivers pushing gold prices upward in the near term.

Citi's latest report, released on Sunday, predicts that gold prices will remain within the range of 3100 to 3500 dollars per ounce over the next three months. This is an upward revision from their previous forecast of 3000 to 3300 dollars per ounce, issued on May 12. The adjustment comes in the wake of heightened investor concerns over the escalation of trade wars, particularly after Trump threatened to impose a 50% tariff on the European Union, although he later withdrew the threat.

Despite the upward revision in short-term gold price expectations, Citi's analysts remain cautious about the long-term outlook for gold. They point to two potential headwinds: the upcoming U.S. midterm elections and the increasing likelihood of interest rate cuts by the Federal Reserve, which could alleviate concerns about economic growth and global stock market risks. Additionally, current data indicates that global households hold the highest levels of gold in 50 years, which could potentially limit further price increases.

Citi's shift in short-term gold price targets to 3500 dollars per ounce was first made in April 2025, driven by market concerns over the independence of the Federal Reserve. However, as global trade tensions eased, particularly with the positive trade agreements between the U.S. and China, gold prices fell significantly. Citi subsequently lowered its short-term gold price forecast to the 3000 to 3300 dollars per ounce range, and gold prices reached the midpoint of this range on May 15, entering a consolidation phase.

Currently, the spot price of gold is trading near 3347 dollars per ounce, down 0.4% from the previous week. This follows statements from Brussels indicating a desire to accelerate negotiations with Washington to avoid a transatlantic trade war. After initial criticism from Trump, both sides have softened their stances. In the U.S. stock market, gold-backed ETFs have seen continuous outflows for five consecutive weeks since reaching their highest peak in over a year in mid-April.

Looking ahead, Citi expects gold prices to stabilize around current levels and maintain a volatile range of 3100 to 3500 dollars per ounce in the second half of 2025. This presents opportunities for tactical trading rather than a directional bullish bet. Citi's long-term outlook for gold is bearish, predicting a significant correction in 2026-2027. In contrast, Goldman Sachs expects gold prices to reach 4000 dollars per ounce by 2026, while Deutsche Bank forecasts a break above 3700 dollars per ounce in the coming year.

Citi's research also highlights that global demand for gold remains at historically high levels, with approximately 0.5% of global GDP allocated to gold purchases, the highest proportion in half a century. This exceeds the gold rush during the 1980 profit crisis, indicating that gold investment has reached a peak, and subsequent profit-taking pressure will be substantial.

Citi's findings reveal that the proportion of gold jewelry and coins in global household net worth has risen to a historic high of 3%, doubling over the past five years. This suggests an impending price reversal. The increasing uncertainty is driving funds into gold bars and coins, and in key markets like India and China, demand for gold jewelry remains resilient despite record-high prices. These factors are supporting gold prices this year.

However, when market participants are "extremely bullish" on a particular asset class, it often signals an impending price reversal. Citi believes that the high level of holdings could be a significant catalyst for a gold price decline, especially as high-net-worth individuals and other affluent households already hold large amounts of gold. Their future purchasing power may decrease, and the likelihood of selling at high prices is high.